The replication of human immunodeficiency virus is controlled by complex mechanisms involving a number of cellular and viral regulatory proteins. Three proteins encoded by the HIV genes, tat, rev, and nef, are thought to control the virus life cycle and might account for HIV pathological characteristics such as latency and conversion to lytic infection. The products of the tat and rev genes are known to be positive regulators and are essential for viral replication. While the function of the product of the nef gene product, p27nef, has not yet been established, it may function as a negative regulator by serving as a transcriptional suppressor. We have used plasmids and recombinant Vaccinia virus vectors to express myristoylated and non-myristoylated p27nef in a variety of cell lines. We have shown that myristoylation is required for p27nef subcellular localization to the cytoplasmic membranes and for its maximum suppression of HIV transcription. A number of cellular binding proteins have been identified by co-immunoprecipitation with p27nef antibodies and by immunocomplex kinase assays with P-32 labeled ATP. Southwestern blotting of anti-p27nef immunoprecipitates with a DNA probe from an internal sequence of the HIV LTR identify one of these proteins as a DNA- binding protein suggesting its role as a transcription factor in the modulation of HIV transcription by p27nef.